Twitter Rising: Goldman Ups Target to $65 on Product ‘Acceleration’

By Tiernan Ray

Shares of Twitter (TWTR) are up $2.14, or almost 4%, at $59.14, reversing days of decline all last week, after Goldman Sachs’s Heath Terry this morning reiterated a Buy rating, and raised his price target to $65 from $46, writing that the company is “accelerating the pace of product innovation,” by which he is referring to a 4x increase in the “number of enhancements” to products over the last quarter.

Terry provides the following chart of 23 new products introduced in Q4 of last year, including “Tailored Ads” and “Reading Lists” (click for larger image):

Terry raised his 2014 estimate to $311.7 million in “monthly active users,” up from 292 million estimated previously, although he cut his estimate for “timeline views” per active user to 3,095 from 3,133, which nets out ad revenue per 1,000 timeline views of $1.22, up from $1.14.

That gets Terry to a revenue estimate this year to $1.23 billion, up from $1.1 billion, and adjusted Ebitda of $137 million, up from $126 million.

Terry offers the following observations about some of the individual product innovations:

Direct access to direct messages (“DMs”) via the navigation bar at the bottom of the app along with the ability to share photos in DMs add messaging as a use case for Twitter, as the company aims to become more ubiquitous and grow its user base. We believe the new direct messaging functionality makes Twitter more competitive to messaging apps such as WhatsApp, WeChat, and Kakao talk, as well as to Facebook’s messaging app. Messaging has seen significant user growth, with WhatsApp at 300mn monthly active users and WeChat at 200mn, for example […] In December, Twitter revamped the mobile product so users can swipe between 3 or 4 timelines: home, discover, activity, and currently in beta, popular photos and nearby. We believe timeline updates, trending TV shows and popular photos simplify the product, improve ease of use, and drive adoption of new functionality that in aggregate likely drive user and engagement growth […] To further its use case as a news source, Twitter now allows users to save links to read later within the mobile app. In 3Q, Twitter also launched related headlines in the permalink of top tweets, to further its integration with platform partners. We believe this, and similar enhancements, improve the ubiquity of the Twitter platform, as it becomes relevant for any user who wants an aggregated source of news and current events […] Twitter is testing new discovery mechanisms in beta, where a series of notifications guides the user to the newly updated 4 different timelines. We believe the size of Twitter’s audience will ultimately depend on its ability to easily onboard new users and effectively surface relevant content, making the new discovery mechanisms conducive to further user and engagement growth.

Terry thinks the stock can trade above his target if he’s right that it hits monthly active users about half what Facebook has currently:

We believe this price target has the potential to prove conservative if Twitter is able to continue to build on its role as a ubiquitous real time communications platform. While the upside case that our target is based on assumes revenue grows by 100% annually on average, that scenario only requires Twitter reach 600mn MAU’s, less than half Facebook’s current audience. While requiring solid execution, we believe as Twitter focuses on ease of use, reaching that audience will come naturally given the platform’s broad application and the growth in mobile usage. Therefore, we remain Buy rated and believe Twitter has the potential to be one of the best performing stocks in our sector in the years ahead.

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There are 5 comments

JANUARY 13, 2014 2:56 P.M.

MikeFirek wrote:

What a load of crap! They made their money shorting it, now they're going long. A fixed game, pure and simple.

JANUARY 13, 2014 3:54 P.M.

Doug wrote:

Not even lies from Goldman could keep TWTR up! Looks like there was short covering but this stock is headed to $40 in a week.

JANUARY 13, 2014 4:21 P.M.

Clark and Lois wrote:

Free Speech is protected by the First Amendment...
But if you are an Imam making "unpopular" statements, the US government
may issue a "kill him" certificate of authorization, even though you
are an American citizen... So, there is something to be made of,
"False advertising, or jus' plain lying, is wrong" argument... But
then again, the very essence of a market's existence implies that
participants do not value the object of desire, the same way...
hence the potential for trading, and profits to be made, trading...
Price is what you pay ; value is what you get... Credit rating agencies,...
analysts' price targets... How do you value a security, or statement of
fact? By the opinions of others? Mass acceptance? Follow the herd,
for they seem to know? I think it was JFK who said, "What we seek
is a free marketplace of ideas where the Truth will prevail"... Does Truth
require that the free marketplace of ideas, be "rigged"? I think the VAtican
heirarchy would say, "Yes, Yes it does Kent." ... But I disagree. Let the
scientists teach the masses that the earth is a planet, and not flat. And let
the citizenry discover for themselves that the earth is rarely flat, but sometimes
hilly, and other times as a valley - curvy, like Einstein's space-time field continuum.
... And so it is with arguments about the price of Twitter common, what it should
be now, and what it will be tomorrow, or a year from now. Mere Opinion.

JANUARY 13, 2014 4:23 P.M.

Jack wrote:

Goldman Sachs led Twitter’s IPO, with help from firms including Morgan Stanley and JPMorgan Chase & Co., regulatory filings show.

Goldman Sachs was responsible for placing almost 27 million of Twitter’s 70 million IPO shares, the filing shows. That indicates the firm will get an estimated 39 percent of the fee pool, or $22.8 million, according to data compiled by Bloomberg. Morgan Stanley would receive the second-biggest share of the fees, at 21 percent, or $12.1 million, and JPMorgan is set for $9.5 million, the data shows.

Of course, the TWTR upgrade has nothing to do with this! Who are you fooling?

JANUARY 28, 2014 12:03 P.M.

eqquesz@yahoo.com wrote:

TWTR still hasn't paid any stockholders dividends- You're wrong about them. They are a passing Fancy. Morgan Stanley and Barrons DOWNGRADED as of todays posting-- looking to bear down to 31.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.